20 September 2004

Straightforward solution to superannuation tax problem

United Future revenue spokesman Gordon Copeland believes that there is a straightforward solution to the current over-taxation of superannuation fund earnings.

“Presently over-taxation occurs in two ways,” he says.

“Firstly, a flat rate of 33 cents applies on fund earnings even although 74% of New Zealanders have a marginal tax rate of just 19.5 cents, ie an over-taxation of 13.5 cents. The answer is to reduce the tax for those savers to 19.5 cents.

“This can very readily be done if the investment scheme manager is supplied with the PAYE tax rate applicable to the last dollar of the employee’s salary and wages in the previous year. The scheme manager then calculates tax and forwards it on to the IRD as a full and final tax on behalf of that saver.

“The second problem is that capital gains through investment vehicles are taxed, again at a flat rate of 33 cents, in counter distinction from the tax-free nature of capital gains on, for example, residential property investment. This completely distorts investment patterns and saving patterns in New Zealand.

“The answer is again straightforward, namely to exempt earnings through investment vehicles from capital gains tax. This removes the current disincentive and creates a level playing field.

“Such a move would be positive for the wider economic success of New Zealand since, with the distortions removed, savers would then concentrate their minds solely on discovering the best investment return consistent with risk.

“It is exactly that signal which government needs to send to New Zealand savers if we are to maximise the potential of our economy and create wealth for its citizens and their families,” says Mr Copeland.

ENDS

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